Seventh Annual AllianceBernstein Defined Contribution Survey Finds Most Investors Understand Target-Date Funds -- but Expect Th

^{Published on 2011-11-07 09:10:11 - Market Wire}
 

Seventh Annual AllianceBernstein Defined Contribution Survey Finds Most Investors Understand Target-Date Funds... -- NEW YORK, Nov. 7, 2011 /PRNewswire/ --

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NEW YORK, Nov. 7, 2011 /PRNewswire/ -- AllianceBernstein today announced new research that shows that overall understanding of target-date funds is high—including what the "date" in a target-date fund's name means and how the asset-allocation strategy for a target-date fund becomes more conservative over time. The firm's seventh annual Inside the Minds of Plan Participants survey also found that investors are very satisfied with these funds, with 81% reporting being equally or more satisfied with their target-date fund investment performance in comparison to the other funds offered in their plans. However, 51% mistakenly believe that using target-date funds will guarantee that their retirement income needs will be met.

According to this year's survey, which polled more than 1,000 US workers whose companies offer defined contribution plans, employees' confidence that they will enjoy a comfortable retirement has slowly been recovering since 2009, during the depths of the credit crisis: 26% of respondents are now confident that they will have a comfortable retirement, versus 18% in 2009. These levels nonetheless trail the enthusiasm recorded in 2007, when 41% of respondents indicated that they felt confident they would have a comfortable retirement.

Inside the Minds of Plan Participants continues its examination of workers' attitudes about retirement plan investing; the appeal and understanding of target-date funds; and the interest in added features such as a built-in, guaranteed income stream.  

"We're pleased to see such high levels of usage and satisfaction of target-date funds—as well as a broad understanding of their basic features," said Thomas J. Fontaine, Head of AllianceBernstein Defined Contribution Investments. "Clearly the growing popularity of target-date funds, combined with concerted efforts to better educate participants about target-date fund features, objectives and risks, is leading to increased satisfaction and comprehension. However, the belief by half of all participants that using these funds guarantees that they will have sufficient income in retirement indicates we still have more work to do."

Fontaine continued, "This finding is somewhat understandable. Our survey revealed that the top reason participants invest in a target-date fund is that they believe it keeps them invested 'to and through retirement,' a strong indication that participants value a strategy that helps put them on a good path to not only building retirement savings, but also carrying them through retirement by providing sustainable income."  

With market volatility fueling retirement funding concerns, investors are looking for ways to feel more confident about their post-professional years. Two-thirds of respondents cite a steady stream of retirement income as a very important feature in a defined contribution investment option. Among other items that appeal to respondents, the survey found that over 90% of investors would value a personalized forecast that would help them understand their expected annual income from their retirement plan.

"Building on our last survey, this latest poll indicates that the appetite for a guaranteed income stream feature in target-date funds remains strong," noted Fontaine. "What's more, we believe US workers are clearly asking for investment solutions and communications that will help them translate their accumulated retirement savings into annual income in retirement. They are listening to the message to save for the future... but now they are asking, 'How much income will I have?'"

Key findings from the seventh annual Inside the Minds of Plan Participants survey include:

1) As in previous years, the survey finds two distinct groups of workers with very different attitudes and actions toward investing. The continued consistency of these two groups provides useful insight into understanding the behavior of plan participants.

When asked to describe how they feel about investing, 43% described themselves in 2011 as "Active" investors: they enjoy making retirement savings and investment decisions and are confident about their retirement prospects. The 57% who described themselves as "Accidental" investors don't enjoy investing, don't pay much attention to it and are not confident in their ability to make investment decisions.

2) Investors indicate a clear satisfaction with and general understanding of target-date funds across groups—with some emerging misperceptions.

Between 2005 and 2011, use of target-date funds by Actives almost doubled, increasing from 22% to 41%. Accidentals also increased their usage of target-date funds, but by a lower percentage, from 16% to 25%. On the other hand, the percentage of Accidentals allocating 40% or more of their overall portfolios to target-date funds between 2007 and today grew faster than for Active investors, increasing 26% for Accidentals versus 9% for Actives.

Most employee investors understand the asset-allocation strategy behind target-date funds—how they become more conservative as one gets closer to retirement and at retirement are invested in a mix of stocks and bonds. Three-fourths of both Actives and Accidentals agreed that target-date funds become more conservative as retirement approaches.

When asked whether target-date funds guarantee that an investor will meet his or her income needs in retirement, surprisingly, 59% of Active investors and 38% of Accidentals incorrectly indicated "true."

3) The next challenge for defined contribution plans is to address employees' desire for a steady stream of income in retirement, and provide enhanced forecasting to foster a better understanding of the expected annual income from lump-sum retirement account balances.

When given a list of choices regarding investment options—such as upside potential, downside protection, a diversified investment mix, a steady income stream in retirement, no-fee access to money, and principal protection—two-thirds of investors selected "a steady income stream in retirement" as the most important. Similarly, if there were a guaranteed income feature in a target-date fund, 78% of Actives and 69% of Accidentals reported that they would be likely to invest in it.

Strikingly, 73% of respondents did not know an effective range for an annual draw-down of a hypothetical $500,000 account balance while having a good chance to sustain income throughout retirement. Instead of choosing what most financial experts would consider to be a reasonable 1-3 or 4-6 percentage rate of their initial account value to withdraw each year in retirement, respondents overestimated the amount they could withdraw, by choosing 7%–9% or 10%+, or said they "don't know."

Significantly, 95% of Active investors and 91% of Accidental investors said that they would value a forecast to help them understand how much annual income they could expect to receive from their retirement plan based on their current account balance, asset allocation and deferral rate.

For a copy of Inside the Minds of Plan Participants, which details the survey results, or for more information on AllianceBernstein's defined contribution services, please go to [ www.abdc.com ].

Survey Background

AllianceBernstein conducted its seventh annual web-based survey in February 2011. It included 1,000 full-time employees age 18 or older. All of the participants worked for companies that offered defined contribution retirement plans, such as 401(k)s.

About AllianceBernstein

AllianceBernstein is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals and private clients in major world markets.

At September 30, 2011, AllianceBernstein Holding L.P. (NYSE: [ AB ]) owned approximately 37.8% of the issued and outstanding AllianceBernstein Units and AXA, one of the largest global financial services organizations, owned an approximate 63.1% economic interest in AllianceBernstein.

Additional information about AllianceBernstein may be found on our internet site, [ www.alliancebernstein.com ].  

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